+ Restructuring staff cost. Staff cost excluding the S$61.7mn government relief was cut by around 32% YoY in 1Q21. The number of employees has been lowered by 19% YoY to 13,500.
+ Cargo is relatively stronger. Cargo segment has performed relatively better than other segments. Cargo handled declined 51% to 221k in 1Q21, in comparison passengers handled tumbled 99% to 0.2mn.
– Associates a major source of weakness. With government relief, SATS suffered an operating loss of S$36mn. It was comparable to the S$31mn losses by associates and joint venture. China was the largest drag to associates. The closure of Beijing Daxing Airport was a reason for the losses in China.
FCF in 1Q21 was a negative $71mn. With a cash balance of S$723mn (net debt: S$152mn), SATS can easily ride out the current downturn or another 10 quarters of the similar level of FCF cash burn-rate. SATS has likely bottomed out operationally but we worry such listless conditions may persist for another three to four quarters.
Maintain SELL with a target price of S$1.95
Without any clarity of a sustainable and material improvement in air travel and net losses to persist for the company, we maintain our SELL recommendation with an unchanged target price of S$1.95. Our forecast is unchanged.